European Central Bank faces a demanding selection against the deteriorating situation on the public debt of peripheral countries in the euro area: to resume the conduct of anti-crisis measures, suspended in March to idle or under pressure from German authorities that they stick her nose risks of inflation.
In this situation, the regulator, guided by the rule of the “lesser evil” will most likely choose to resume purchases of government bonds of euro area countries with serious problems in the secondary market, analysts polled by RIA Novosti.
In recent years, to maintain a viable state of the financial sector in the euro area, ECB pursuing a grant unlimited auctions of 3-year loans at very favorable interest rate of 1% per year as a 2-stage cast over € 1 trillion market.
Most economists, however, noted that such measures are only temporary, “local” character, and not be able to have a lasting impact on the economy of the countries of the European periphery, all possible efforts with little effective control until the debt crisis.
Specifically, as evidence of the ineffectiveness of unlimited auctions, market participants and analysts say the yield on government bonds of Italy and Spain in recent weeks. The yield on 10-year Spanish government bonds last week exceeded 6%, approaching the levels where Greece, Ireland and Portugal turned for support to international creditors in the face of the European Union, the IMF and the ECB.
Prior to this for some time after the first auction in December, the ECB actions actually helped mute the problems of the debt market, addressing the trend of growth in profitability in the medium and long-term Spanish and Italian government bonds.
Some economists, however, noted that currently the financial institution does not have the tools that are able to radically improve the situation in the euro area as the root causes are rooted in both the pace of European countries.
“The ECB can improve only partially and to buy time, but has no weapons to fully overcome the crisis because it is largely caused by imbalances in the economies of the eurozone countries. After all, the ECB is unable to improve the competitiveness of the economy of one country or another. No, the ECB is unable to independently solve the problems of Italy and Spain, but it makes a lot, buying time and liquidity flowing, “said senior economist at ING Philip Lident.
Market experts agree that pan-European financial regulator in the received situation would prefer not to hold a third 3-year auction since the likelihood of funds in the markets for government debt in the periphery of the euro area is not particularly large.
“The feeling is that the purchases of bonds by the ECB at this time will affect the best. The first 3-year unlimited auctions also had a temporary effect, but beyond that most of the funds received from the banks of these auctions, go back to the ECB. I am not convinced that a third auction will help seriously because banks already took quite periphery liquidity. The amount so far is sufficient. In a third auction bulk of the funds may still return to the ECB and there is no guarantee that greater market liquidity will lead to even larger purchases of government bonds, “said Lident.
It is agreed and senior analyst at Raiffeisen Research Valentin Hofshteter. “Holding another long auction seems less likely than the renewal of the program to purchase government bonds. Auctions are not so directly influence the markets for government debt. Unable to borrow cheap money to buy bonds indefinitely, given the weak banking system. ”
“The ability to take risk in the Spanish banking system, for example, is largely exhausted. And the ECB has so far away from its limit risk taking in the balance of government bonds, but, of course, is close to the German political limit to take the burden the problems of the countries of the periphery of the eurozone. However, for the sovereign debt market is more efficient to resume purchases of government bonds rather than additional long-term auctions, “he said.
ECB started buying government bonds of euro-zone in the secondary market in the spring of 2010 against the development of the debt crisis in Greece to lower profitability for them to calm the markets.
Between April and August 2011 such operations were performed, but then financial regulator is forced to see them because of renewed strong growth in profitability in the Spanish and Italian government bonds.
Purchases were made regularly until February, but were stopped before the second auction for 3-year unlimited credits, held at the end of the month. During the week ended March 9, were last purchased securities worth only 27 million.
“The program for the purchase of bonds, as we saw, had an impact on the profitability of Spanish and Italian bonds, but he was always short and weak. He will always remain so until the program itself remains limited. The only way for long-term lowering of yield is down to their maximum limit above which the ECB to intervene through their purchases. This is unlikely to happen, “said Lident.